In September, the U.S. inflation rate rose by 0.2%, bringing the annual rate to 2.4%. Examining RealPage U.S. multifamily effective rent data alongside U.S. CPI reveals rental inflation had consistently outpaced overall inflation growth year-over-year (YoY), until more recently in 2024.
U.S. CPI vs Multifamily Effective Rents YoY
Post COVID Demand Shock
In the years following the pandemic, a wave of migration out of larger coastal markets, spurred by higher living costs and the flexibility of remote work, created a demand shock in many inner coastal and Sunbelt markets, driving apartment rents upwards of 15% YoY in some instances.
This flight to affordability continues today, but with the latest new supply delivering, rents have stabilized.
Examining which markets are driving rents lower YoY as of September, it's clear the Sunbelt markets are the primary culprit (Austin, Raleigh, San Antonio, Atlanta). Based on the chart below, Austin experienced the sharpest rent decline (-7.5% YoY) driven by a surge in new supply. On the flip side, Chicago stands out with the highest rent growth (+5.7% YoY), driven by limited new supply and steady demand.
Looking Beyond Today's Headlines: Don't Discount The Sunbelt
Although the Sunbelt has the largest near-term supply pipeline expected to deliver through 2026 as a percentage of existing inventory, the sharp decline in new construction starts in major U.S. markets, caused by rising construction and financing costs, is more likely to push rents higher across all major markets, including the Sunbelt, as housing demand persists.
With the data dependent Fed expected to keep interest rates higher (>2%) driven by a strong labor market, and more recently, higher than expected inflation data, we expect new development to remain limited, which will ultimately push rents higher across all major markets. Moreover, rising geopolitical tensions are driving energy prices higher. Crude oil is already up +14% since bottoming in early September.
Market and asset prices remain elevated, as shown below with the S&P 500 trending higher. This upward momentum may contribute to further pressure on inflation as expansionary trends persist.
Federal Funds Rate vs S&P 500 % Change Since 2015
Source: RealPage, FRED